Hilton Worldwide Holdings Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Hilton operates, manages, franchises and licenses hotels and resorts; at quarter-end its system included 6,676 properties, 1,050,331 rooms and 119 countries and territories. Results remained materially affected by COVID-19 and are not directly comparable with pre-pandemic periods.
Financial and operating performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $1.329 billion | $564 million | $2.203 billion | $2.484 billion |
| Operating income (loss) | $224 million | $(302) million | $245 million | $(234) million |
| Net income (loss) attributable to Hilton stockholders | $130 million | $(430) million | $22 million | $(412) million |
| Diluted EPS | $0.46 | $(1.55) | $0.08 | $(1.49) |
| Adjusted EBITDA | $400 million | $51 million | $598 million | $414 million |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $(300) million | $946 million |
- Q2 total revenue increased 136% year over year, while first-half revenue decreased 11%. Total revenue includes substantial reimbursed revenues and expenses from managed and franchised properties; these pass-through amounts affect reported revenue but generally are not intended to generate a profit.
- Q2 system-wide comparable RevPAR rose 233.8% year over year to $73.03, with occupancy of 58.5% and ADR of $124.75. The comparison reflects the exceptionally weak Q2 2020 pandemic period. First-half RevPAR rose 23.2% to $59.75, while ADR fell 7.1%.
- Recovery varied by region. Europe’s first-half RevPAR declined 30.5% year over year amid continuing restrictions and travel barriers; U.S. first-half RevPAR increased 26.9%.
- Cash and cash equivalents were $1.044 billion at June 30, 2021, plus $83 million restricted cash, compared with $3.218 billion and $45 million, respectively, at December 31, 2020. First-half operating cash outflow was $300 million; investing cash outflow was $14 million and financing cash outflow was $1.818 billion.
- Gross debt, excluding unamortized financing costs and discounts, was approximately $8.9 billion. Hilton repaid the $1.69 billion revolver balance during the first half; $1.69 billion of revolver capacity remained available after letters of credit. Balance-sheet long-term debt was $8.716 billion, with $50 million of current maturities.
- Hilton reported a total stockholders’ deficit of $1.416 billion. No dividends were declared in the first half of 2021; the company said dividends and repurchases may resume in future periods but gave no timing.
Material changes and unusual items
- Hotel demand and fees improved as travel restrictions eased and vaccinations broadened. More than 98% of Hilton’s global properties were open at June 30; 95 remained suspended as of July 21, 2021. Management expected nearly all pandemic-suspended properties to be open by year-end.
- Franchise and licensing fees increased to $369 million in Q2 from $132 million. Owned and leased hotel revenue rose to $121 million from $31 million in Q2, but first-half owned and leased revenue fell 26.6% to $177 million.
- First-half results included a $69 million loss on extinguishment of debt. Hilton issued $1.5 billion of 3.625% notes due 2032 and redeemed $1.5 billion of 5.125% notes due 2026, including a $55 million redemption premium and $14 million accelerated financing-cost write-off.
- A $30 million tax benefit arose from remeasurement of U.K. deferred taxes following enactment of a higher U.K. corporate tax rate. First-half share-based compensation expense was $92 million, compared with $12 million a year earlier.
- First-half operating cash flow was affected by working-capital movements and the prior-year comparison, which included $1.0 billion received from the Hilton Honors points pre-sale in 2020. Excluding that transaction, Hilton said operating cash flows were flat year over year.
Outlook, risks and contingencies
- Hilton provided no quantified financial guidance in the supplied filing text. Management said the timing and extent of the pandemic’s effects and recovery remained uncertain; new variants, travel restrictions and changes in demand could affect results.
- Management believed available cash, operating cash generation and revolver capacity would meet anticipated needs for the foreseeable future under current conditions. It noted debt-service capacity depends on future operating performance. No material debt maturities were due before May 2025, according to the filing.
- Hilton reported approximately $88 million of program costs expended in excess of collections for marketing, sales and brand programs as of June 30, 2021, compared with $5 million of excess collections at year-end 2020.
- Five hotel performance guarantees had possible cash outlays totaling approximately $18 million; $1 million was accrued. Hilton also guaranteed a $10 million loan and had up to approximately $10 million of contingent hotel capital-expenditure funding. Two letters of credit totaling $26 million supported a managed hotel’s debt-service reserve.
- Tax authorities’ unsettled proposed adjustments for 2006–2013 sought approximately $817 million in additional U.S. federal tax, excluding interest, penalties and potential state taxes. Hilton disputed the assertions; it had recorded $88 million of unrecognized tax benefits related to these issues. Total unrecognized tax benefits were $442 million, with approximately $70 million accrued for related interest and penalties.
- Hilton said pending claims and litigation were not expected to have a material adverse effect overall, though an unfavorable resolution could materially affect results in a particular period. Other identified risks include hospitality-industry conditions, indebtedness, foreign exchange and interest rates, third-party hotel owners, competition and technology systems.
Investor verification priorities
- Assess whether hotel demand, occupancy, ADR and RevPAR recovery is sustainable, especially given pandemic-distorted comparison periods and regional differences.
- Track operating cash flow, working-capital needs, contract acquisition spending and cash balances as Hilton resumes investment and considers reinstating dividends or repurchases.
- Review debt balances, interest costs, revolver availability and the effects of refinancing activity on future cash requirements.
- Monitor the IRS appeal and other tax examinations, including potential exposures beyond recorded reserves.
- Follow the marketing-program funding shortfall, hotel guarantees, contingent commitments and the pace of reopening suspended properties.